100% Financing for Veterinarians – Purchase, Construction, Refinance
Veterinarians are a preferred business type for SBA lenders since many practices do very well and rarely default on their loans. Lenders realize that the barriers to entry for veterinary practices can high and as a result those who are ready to open their own practice typically have the requisite education and required experience.
The success rate of most veterinary clinics makes it possible to obtain 100% loan to value financing with a 25 year amortization in the following instances:
- Purchase of a building for an expansion of an existing practice
- A move from leased space to space you would own
- Construction of a new building for an existing practice
- Purchase of an existing profitable practice (and building) for a qualified doctor. (Sometimes this scenario requires the vet selling the practice/building take back a second mortgage).*
Conventional (NON-SBA) Financing
100% Practice Financing is also available with a conventional loan with amortizations between 10 and 20 years with excellent rates. Please contact us at 1-800-414-5285 if you are just looking to finance a practice and not a building.
* SBA underwriting guidelines for many (not all) lenders re: business acquisitions stipulate that if Goodwill is greater than $500K then you must put down at least 25% and if goodwill is less than $500K you must put down 10%, however it is possible for the entire 10% or 25% down payment to be held as a second mortgage by the seller. Keep in mind that if the value of the real estate is less than the value of the practice then a 25 year amortization will not be possible. Please see example at bottom of page re: how the percentage of goodwill affects the maximum amortization possible.
100% Fixed Rate Financing for Purchase or Construction of a Building
25 year fixed rate financing is available for existing practices for the purchase or construction of a building that your practice would occupy. The program actually consists of 2 loans – a fixed rate first mortgage for 90% of the purchase price (or 90% of the construction costs) and a 10% loan against your current practice equity.
Please contact us for more info at 1-800-414-5285
Working Capital & Other Practice Needs
One of the benefits of a 7a loan is that you can finance not only the construction of an animal hospital or clinic, but just about everything else that goes into it including working capital, inventory, etc. and in the case of a refinance it allows for business debt consolidation.
100% Financing for Leased Properties
It is also possible to get 100% practice financing for properties that you lease as long as the seller is willing to hold a second mortgage. Keep in mind that a practice acquisition without real estate will be limited to a 10 year term.
Gift Funds and Borrowing the Down Payment
Down payment or equity can be in the form of a gift from a family member or borrowed against another asset like a home equity line, but you can only borrow the money if you can prove that you (or a spouse) have other “outside” income that will allow you to handle the monthly payments for the debt.
90% Construction or Acquisition Financing for Start Up Veterinary Hospitals/Animal Hospitals and Clinics
If you are starting a new veterinary practice and are purchasing or constructing a clinic then 90% financing is possible.
High loan to values are possible with the 7a because it is mostly a cash flow loan – meaning that a lender underwrites the loan based on the historical (or in the case of a start up) the proposed cash flow of the business.
Important Note: 100% financing is possible per SBA guidelines, but lenders reserve the right to determine what they are willing to do based on the merits of each borrower.
90% Financing for Practice Acquisition In Leased Space
Veterinarians purchasing an existing practice where the space is leased or starting a new one in leased space are eligible for 90% financing with the 7a program, but SBA limits the term to 10 years for non-real estate related transactions.
The key to remember here is the loan to value is determined by the amount of “blue sky” or goodwill that is included in the purchase price.
If the Goodwill/ Intangible Assets are $500,000 or less, then a 10% down payment and/or seller note is required and the lender can finance 90%.
If the Goodwill/ Intangible Assets are $500,000 or more, then a 25% down payment or seller subordinate note is required, and the seller note would need to be on “full standby,” with no payments being made for the first 2 years. (Interest can accrue during this time however).
504 or 7a?
The 504 program is also a good program for financing a veterinary practice or animal hospital, but it is primarily used for just real estate and equipment and has more rigid requirements regarding down payment/equity and seller held financing. It cannot be used for working capital or practice purchase, but it does allow the financing of furniture, fixtures and other office and medical equipment. It could be an excellent solution for an existing practice undergoing an expansion.
Both the 7a and the 504 offer excellent leverage allowing you to conserve cash because they allow for:
- minimal down payments
- the ability to finance most closing costs
- long term amortizations of 20 to 25 years
Veterinary Clinics With Multiple Locations
One aspect of the 504 that could be useful for larger practices with multiple locations would be the green or energy efficient 504 loan as it allows borrowers to exceed the usual $5 million cap on SBA eligibility. Maximum SBA eligibility is typically $5 million…meaning that once you have borrowed $5 million in SBA guaranteed funds you cannot get another SBA loan, but the SBA is trying to promote energy efficiency so they’ve made an allowance for those borrowers who build or retrofit their clinics to be either energy efficient or produce their own renewable energy.
You can find out more about the Energy Efficient 504 by clicking here.
Maximum Allowable Loan Maturity With A Lot of Goodwill – 100% Financing Example
For business purchases with a lot of intangible assets (blue sky/goodwill), SBA underwriting guidelines state that as long as real estate is the largest use of the loan proceeds, then a 25 year term is possible.
If commercial real estate isn’t the largest percentage of the loan, then SBA requires the lender to do a weighted average calculation to determine the maximum allowable maturity.
Here is an example for a Veterinary Clinic & Practice purchase where the sales price is $1.4 million with $900,000 in goodwill and $500,000 in real estate value.
Please note that lenders will typically allocate all of the equity/seller note to the practice purchase so more loan dollars go towards real estate.
In the following example the loan maturity would be calculated as follows (excluding closing costs and working capital):
- Total Request- $1,400,000
- Real Estate- $500,000
- Practice- $900,000
- Seller note required- $350,000 (25%)
- Loan- $1,050,000
- $500,000 to purchase real estate (48% of total loan amount)
- $550,000 to purchase Practice (52% of total loan amount)
Real Estate is eligible for 25 year term
Practice is eligible for 10 year term
Maximum maturity calculation: (48% x 25 years) + (52% x 10 years) = 17.2 years
The SBA loan process has improved dramatically over the years to the point where it is not much more taxing on a borrower than getting a conventional commercial loan. Lenders are much more willing to do SBA loans than conventional because the government guarantee alleviates much of the risk and they are willing to offer better terms and higher loan to values for veterinarians than most other businesses.
Click here for 7a Loan Program Info
Click here for 504 Loan Program Info
Please contact us at 1-800-414-5285 to find out more.